The CES production function, the accounting identity, and Occam's razor

This paper reconsiders the argument that empirical estimations of aggregate production functions may be interpreted merely as statistical artefact. Th e reason is that Occam's razor, or Herbert Simon's principle of parsimony, suggests that the aggregate production function, together with the side equ ations derived from the usual neoclassical optimizing conditions, simply re flect the underlying accounting identity that value added definitionally eq uals the wage bill plus total profits. This argument is illustrated with re spect to the empirical evidence presented by Arrow, Chenery, Minhas and Sol ow (Review of Economics and Statistics, XLIII, 225-50, 1961) and which led them to derive the Constant Elasticity of Substitution aggregate production function. It is shown that their results are more parsimoniously explained with reference to the underlying accounting identity than to any technolog ical relationship.